Higher price on carbon needed to effectively tackle climate change

07/12/2015 – OECD urges efforts to better price carbon as new analysis finds that 90% of CO2-emissions are priced below EUR 30 per tonne, a low-end estimate of climate damage, and 60% are not priced at all. Effective Carbon Rates in the OECD and Selected Partner Economies calculates effective carbon rates (ECR) on CO2-emissions from energy use for 41 countries which together use 80% of global emissions.

CO2-emissions from energy use are a primary contributor to climate change. Putting a price on carbon, through taxes or through emissions trading systems, is one of the most effective tools for reducing the CO2-emissions from energy use. Prices can reduce energy use, improve energy efficiency, and drive a shift towards less harmful forms of energy.

The effective carbon rate is the sum of specific taxes on energy use, carbon taxes, and prices of tradable emissions permits, where these apply. It is the total price on carbon emissions from energy use resulting from market-based policy instruments (including specific energy taxes that are not explicitly intended as taxes on carbon emissions but that are economically equivalent.)

The main findings, for 41 countries representing 80% of world emissions in 2012, are as follows:

60% of CO2-emissions from all energy use in the 41 countries are not subject to an ECR at all, 30% are subject to a rate between zero and EUR 30 per tonne of CO2, and 10% to a rate above EUR 30 per tonne. Hence, 90% of emissions are priced below the low-end estimate of the climate cost of CO2-emissions, being EUR 30 per tonne, and 60% of CO2-emissions are not priced at all.

Outside of road transport, the ECR is zero for 70% of emissions, and 96% of emissions from energy use are subject to an ECR of less than EUR 30 per tonne of CO2. In road transport, 46% of CO2-emissions in the 41 countries face a rate of more than EUR 30 per tonne of CO2-emissions.

“We need an effective price on carbon emissions if we want to tackle climate change. Unfortunately, implementation of the polluter pays principle is woefully lacking", said OECD Secretary-General Angel Gurría. "While lower-end estimates put the damage from emitting 1 tonne of CO2 at EUR 30, 90% of all emissions from energy use are priced at less than that when we look at 41 countries representing 80% of world energy use. Moreover, 60% of emissions are not subject to any price whatsoever. We cannot continue like this if reducing greenhouse gas emissions in a cost-effective manner is a true policy objective.”